Milton Friedman's Long-Run Impact
By David Henderson
The truth is somewhere between the two extremes. While Milton Friedman has not had as much effect on economic thinking and policy as many of us free market advocates would like, he has nevertheless had a huge impact.
On economic thinking, the following of Friedman’s ideas have held up well: that monetary policy is potent; that a contraction in the money supply between 1929 and 1933 helped put the “Great” in “the Great Depression”; that inflation “is always and everywhere a monetary phenomenon”; and that there is no long-run tradeoff between inflation and unemployment. On economic policy, his attribution of inflation to monetary policy rather than to unions or corporate monopolies has strengthened the hand of the Federal Reserve in fighting inflation. In the early 1970s, he opposed President Nixon’s economy-wide price controls as a way to end inflation. Although he was arguably in the minority in the economics profession at the time, most economists today would oppose such controls and their opposition has so far helped dissuade the federal government from imposing them. His activism in the late 1960s and early 1970s to end military conscription bore fruit: the draft was ended on January 27, 1973.
This is from David R. Henderson, “Milton Friedman’s Long-run Impact,” Defining Ideas, September 9, 2021.
One of Friedman’s first big victories was on the importance of monetary policy. In a 1969 Newsweek column, when the majority of economists held the Keynesian view that monetary policy was impotent and fiscal policy was potent, MIT economist Paul Samuelson wrote:
[T]here is no sight in the world more awful than that of an old-time economist, foam-flecked at the mouth and hell-bent to cure inflation by monetary discipline. God willing, we shan’t soon see his like again.
God wasn’t willing. By the mid-to-late 1970s, Friedman’s view about the importance of monetary policy in affecting the inflation rate had become dominant. In fact, even Samuelson came to believe that monetary policy was potent. He never admitted that his view had changed or that Milton Friedman’s work had had any influence on him, but in his famous textbook, Economics, you can track his change in viewpoint edition by edition. Indeed, in my Wall Street Journal obituary of Samuelson, I did track it. By the 1985 edition, Samuelson and co-author William D. Nordhaus wrote that money “is the most powerful tool and useful tool that macroeconomic policy makers have.”
This change in economists’ views has been long-term. It’s fair to say that the majority of economists today believe that monetary policy is the main contributor to inflation.
Read the whole thing.
Here’s the Friedman bio in David R. Henderson, ed. The Concise Encyclopedia of Economics.